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Setting up in Competition
Published March 2008 By Sally Morris
The recent decision in
Crowson Fabrics Ltd v
Rider and others deals
with former mployees
setting up in competition
with their former employer.
All contracts of employment feature an implied term requiring an employee to act in good faith and fidelity for the duration of their contract. This duty extends to not competing with the business, not soliciting customers, not enticing employees and maintaining confidentiality.
However, following termination, unless these matters are prohibited for a period under restrictive covenants, the only ongoing implied duty is to prevent the disclosure of trade secrets.
In this case, the High Court determined that there is a distinct difference between “illegitimate” action, which breaches the duty of confidentiality, and that which breaches the duty of good faith.
The case dealt with the copying, removal and misuse of confidential business data, which was misappropriated to use in a competing business and included customer names and contacts, sales figures, profit margins and supplier details.
The former employees argued that this was not confidential information as it was available in the public domain, and in any event had been formulated as part of their own expertise and knowledge whilst working for the company. The High Court agreed on this issue, stating that if the information was in the public domain and that it had been found in the public domain it could be used and the employees could not be prevented simply because the employer had labelled the information as “confidential”.
However, the court upheld the complaint that the employees had breached their duties of fidelity, given that they had knowingly collated voluminous documents prior to the termination of their employment, with it always being their purpose that they would establish a competitive business. It was viewed that they had overstepped the line due to the amount of preparatory work carried out, and the employees’ numerous lies about their future intentions upon giving the employer notice of termination.
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